YTL Corp/YTL Cemen Dec 2011

YTL Corp/YTL Cement: YTL Corp is making a voluntary share swap offer for YTL Cement at an offer price of rm4.50 per share. Under the proposed scheme, YTL Cement’s minority shareholders will be getting 3.17 YTL Corp shares for every existing YTL Cement shares held. Based on YTL Corp’s closing price of rm1.54, the takeover offer values the group’s cement unit at rm4.88 per share which is only a 6.12% premium over the market value. Also YTL Corp is offering rm2.21 for every rm1 in ICULS of YTL Cement. This translates into 1.56 YTL Corp shares for each rm1 ICULS. As at Dec 16, 2011, YTL Corp and its investment vehicle YTL Industries Bhd collectively hold 47.8% in YTL Cement.

YTL Corp is seen to be getting a good deal since YTL Cement is priced at lower valuation and is a cash rich balance and steady earnings growth over the past few years. Moreover the offer does not reflect a control premium. YTL Cement is trading at relatively low valuations ay 9.7 times PER and below price to book of 0.97 compared with its historical 10 year average PER and P/B of 10.67 times and 1.31 times respectively.

YTL Cement low valuations could be due to poor liquidity of the stock with top 30 shareholders owning 86.5% of the company as at Sept 30, 2011. Some 52.8% of the company’s already held by parties acting in concert. YTL Cement has rm1.374 billion in cash with some rm867 million bank borrowings as at Sept 30, 2011. The exercise will allow YTL Corp to gain access to YTL Cement’s net cash of rm508 million. The extra cash in YTL Corp’s war chest will be good for the group which could take advantage of the suppressed asset valuations amidst current economic uncertainties.

However, YTL Cement shareholders could easily be invested into YTL POWER, instead of having YTL Corp shares, if they had the cash and gain the exposure directly. YTL Power is the largest contributor to YTL Corp accounting for 81% of the latter’s earnings for FY201 ended June 30.